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Smartwatches targeted as next ad frontier

By Brian Womack, Bloomberg News

Updated:
07/08/2014 11:27:48 AM EDT

Even before wearable technology gains widespread popularity, advertising companies are devising ways to deliver marketing messages directly to people who don watches, glasses and headgear that double as computers.

Case in point: InMobi Pte, a maker of mobile-ad tools, has a team of developers creating virtual mock-ups of ads on smartwatches, head-mounted displays and other gadgets to get a feel for how they can serve as a platform for marketers. The engineers, surrounded by powerful computers with large monitors at the company's offices in San Francisco and Bangalore, India, are trying to get a head start in the nascent market, which has captured the attention of Google Inc. and Apple Inc.

"Any device with a screen allows for an interesting opportunity," said Atul Satija, vice president and head of revenue and operations at inMobi.

Millennial Media and Kiip have joined the search for viable wearable-ad technology, underscoring the appeal of the devices as marketing platforms. Shipments of wearables are projected to reach almost 112 million units in 2018, up from less than 20 million this year, according to IDC. While that's still a tiny fraction of the more than 1 billion smartphones that will be sold in 2014, it's enough momentum to induce ad companies to move products into development and out of the lab.

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A hit product would not only spur sales for Apple, Google, Samsung Electronics and other companies that drove the smartphone revolution, it will also open up new ways to make money from apps, reach consumers and gather data.

Given the limited display size of the devices, the ads will be smaller than those on smartphones -- and could briefly take over small screens to show promotions for coupons, shoes or health insurance.

"If we continue to see that positive growth and upward trajectory, then I think that advertising will follow."

Wearables also promise troves of unique data in areas related to health, activities and location, giving marketers new ways to put ads in front of consumers. For example, the wearable-ad experiments could involve sending a user an electronic coupon for cookies when they're in the snack aisle of a grocery store. Or marketers might try to sell consumers a new pair of running shoes after collecting jogging data from a wearable gadget.

Devices such as computerized eyewear could even detect what a user is looking at when they're shopping, said Julie Ask, an analyst at Forrester Research.

"Knowing where I am is interesting," Ask said. "Knowing what I'm looking at or studying for three to four minutes is more interesting."

While the gadgets could make a "small dent" in mobile advertising in the coming years, much will depend on whether users embrace them.

"We go back to the creep factor, which comes up so often when talking about personalization and in using data," Yeager said. "You run into privacy considerations -- consumers are definitely aware of that. That's something that they have to consider when they're building these applications -- how far is too far?"

Companies have to be mindful not to turn away users because they appear to be intrusive or use sensitive information, Yeager said.

"I think the industry has learned a lot from how do you deal with privacy on the mobile side," said Naveen Tewari, CEO of InMobi. Companies are also getting better at protecting consumers' privacy, Tewari said. "They'll have to do the same with privacy on the wearables side."

Google Glass, one of the most closely watched platforms in wearables, currently doesn't allow advertising. The devices, still in trial phase, could have a more widespread rollout by the end of the year, though that isn't a certainty, company co- founder Sergey Brin said at a technology conference in May.

It wasn't until 2011 -- four years after the debut of the iPhone -- that ads on smartphones took off, Yeager said, indicating that it will still be a while until wearable ads mature into viable businesses.

Tom Neumayr, a spokesman for Apple, declined to comment on any plans for a smartwatch.

Still, advertising, which generated 84 percent of Google's revenue last year, is set to be integral to wearable gadgets. Google has been granted a patent that shows how images displayed on computerized eyewear could include paid promotions. The patent refers to "charging advertisers associated with the advertisements based at least in part on a per-gaze basis."

The Glass team has no plans to use this patent now or in the foreseeable future, Google said in an e-mailed statement. The company isn't just using Glass to push into the wearables industry. In March, it unveiled Android Wear, a project to extend the smartphone operating system to watches and other gadgets. Google is teaming up with hardware makers such as HTC and LG Electronics as partners for the devices.

One of the early players in the wearables market is Pebble Technology, a startup that develops smartwatches. The devices, which have a simplified interface on small, black-and-white screens, have spurred conversations with partners about how advertising could work, according to Asad Iqbal, head of business development for the Palo Alto, Calif.-based company.

"Pebble is definitely ripe for advertising, but it may not be in the form that you see advertising traditionally -- say on mobile devices or other mediums," Iqbal said.

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